Note: This is an earnings call transcript. Content may contain errors.

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DATE

Wednesday, Oct. 29, 2025, at 10 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Aaron Jagdfeld
  • Chief Financial Officer — York Ragen
  • Vice President, Corporate Development & Investor Relations — Kris Rosemann

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RISKS

  • Residential Net Sales Decline — Residential product net sales decreased 13% to $627 million in Q3 2025 as a result of substantially lower power outages and weaker demand for home standby and portable generators.
  • Gross Profit Margin Contraction — Gross profit margin declined to 38.3% from 40.2% in Q3 2024. This was driven by unfavorable sales mix, higher tariffs, and manufacturing under absorption.
  • Free Cash Flow Reduction — Free cash flow decreased to $96 million from $184 million in Q3 2024. This was primarily because of increased inventory and lower operating income.
  • Lower 2025 Outlook — Full-year 2025 net sales growth outlook was revised from a prior 2%-5% increase to approximately flat, reflecting lower residential demand and "the extremely low outage environment in recent months," according to management.

TAKEAWAYS

  • Net Sales -- $1.11 billion, down 5% year-over-year. Including an approximate 1% favorable impact from acquisitions and foreign currency.
  • Residential Product Sales -- $627 million, a 13% decrease year-over-year. There was softness in home standby and portable generators, partially offset by significant growth in energy technology solutions.
  • Commercial & Industrial Product Sales -- $358 million, up 9% led by domestic telecom, industrial distributor channels, growth in Europe, and the first shipments to data center customers.
  • Other Products and Services Sales -- $129 million, up 5% year-over-year. This was driven by growth in Ecobee and subscription sales, offset by lower parts and shipments due to fewer outages.
  • Gross Profit Margin -- 38.3%, down from 40.2% in Q3 2024. Mainly due to sales mix and higher tariffs.
  • Operating Expenses -- Increased by $20.2 million (6.7%). This includes certain legal and regulatory charges; excluding these, operating expenses were down $600,000 (0.2%) from the prior year.
  • Adjusted EBITDA -- $193 million (17.3% of net sales). This compares to $232 million (19.8%) previously; margin decline attributed to sales mix and operating expense deleverage.
  • GAAP Net Income -- $66 million, down from $114 million in Q3 2024. Includes a $5.7 million mark-to-market adjustment and $1.2 million debt refinancing loss.
  • Diluted EPS (GAAP) -- $1.12, compared to $1.89 in Q3 2024.
  • Adjusted Net Income -- $108 million ($1.83 per share) versus $136 million ($2.25 per share) in the prior year.
  • Free Cash Flow -- $96 million, down from $184 million in Q3 2024. This was primarily impacted by inventory build and lower operating income.
  • Backlog for Large Megawatt Generators -- Over $300 million, doubling in ninety days. The majority is scheduled to ship in 2026.
  • Residential Dealer Network -- Nearly 9,400 dealers, an increase of about 100 sequentially.
  • Global C&I Product Sales -- Grew 9%, strengthened by data center, telecom, and industrial channels.
  • Ecobee Installed Base -- Approximately 4.75 million connected homes. With growth in high-margin subscription revenue.
  • New Product Launches -- Initial shipments started for next-gen home standby generators and PowerCell 2 storage systems; PowerMicro microinverter to ship by year-end.
  • Guidance Update -- Full-year sales expected to be flat; prior guidance was plus 2%-5%. Residential product sales projected to decline mid-single-digits for 2025. C&I sales projected to rise mid-single-digits in 2025.
  • Gross Margin Guidance -- Flat to slightly down for 2025 compared to 2024. Representing about a 1% decrease from the prior expectation of around 39.5% for 2025.
  • Adjusted EBITDA Margin Guidance -- Adjusted EBITDA margin guidance reduced to about 17% for 2025. This is down from the prior 18%-19% range, reflecting sales mix and OpEx deleverage.
  • Free Cash Flow Conversion -- Expected at approximately 80% of adjusted net income for 2025 (about $300 million) versus a previous range of 90%-100% for 2025.
  • Capital Expenditures -- Projected at 3.5% of net sales for 2025. 0.5% higher than prior guidance for 2025 due to incremental investment for data center capacity expansion.
  • GAAP Effective Tax Rate Guidance -- Now 20%-20.5% for 2025. Previously 23%-23.5% (effective tax rate, 2025 guidance); Q4 expected at ~25%.
  • Interest Expense Guidance -- $70 million to $74 million for 2025. Lower than the previous $74 million to $78 million range for 2025, reflecting reduced rates and borrowings.
  • Capacity Expansion Outlook -- Plans underway to at least double large generator capacity beyond $500 million for 2027 and later, supported by facility and equipment investments.
  • Data Center Market Entry -- Backlog growth, new customer shipments, and aggressive capacity investments highlight a major strategic push, though no hyperscaler orders are yet reflected in backlog.

SUMMARY

Generac (GNRC 2.54%) management cited the quarter’s historically weak power outage environment as a core driver of lower residential sales and revised guidance. Recent data center backlog doubled to over $300 million, with shipments beginning both domestically and internationally, anchoring a major capacity expansion strategy. Significant investments in new product introductions, Ecobee platform integration, and facility upgrades reflect a deliberate portfolio shift toward higher-growth and recurring-revenue areas. Leadership affirmed gross margin and adjusted EBITDA margin compression for 2025, with an explicit plan to improve both metrics by leveraging operating scale, favorable mix recovery, and transitory cost relief in the subsequent year.

  • Jagdfeld stated, "We believe the resulting improvement in close rates will further optimize our customer acquisition costs and lead to a broader distribution of sales leads across our residential dealer base."
  • Ragen disclosed Net income fell to $66 million in Q3 2025, driven in part by "an unfavorable wall box fair market value mark-to-market adjustment of $5.7 million and a loss on refinancing of debt of $1.2 million."
  • Management expects Ecobee to deliver positive EBITDA for the full year, signifying operating leverage and margin progress within this home energy platform.
  • Jagdfeld outlined plans to "recalibrate our investment levels to reflect the completion of our energy grant program in Puerto Rico and to adjust for a broader market environment that is likely to contract in 2026."
  • Jagdfeld emphasized, "we have to be we have to be aggressive. We have to lean forward. And we will capitalize on this in a way that I think the market certainly wants us to succeed. Every conversation we've had is to that effect. We will succeed. This is going to be an area that's right in our wheelhouse. I feel very comfortable and very confident that we can execute on this. Our first shipments I watched them go out of our factory in Oshkosh, Wisconsin, last week. A week and a half ago, our first shipments went out internationally to a customer here earlier in the month. And things are rolling. We've got products online, and we're looking at, you know, how can we aggressively expand our capacity by leaning forward with investment in this area of our business."
  • Ragen detailed the reduced free cash flow conversion outlook, now 80% for 2025, as a function of increased working capital usage and capital investment requirements.

INDUSTRY GLOSSARY

  • Adjusted EBITDA: Earnings before interest, taxes, depreciation, and amortization, as defined and adjusted for items disclosed in the company’s earnings materials.
  • HSB (Home Standby): Residential generators permanently installed to provide backup power to homes during outages.
  • IHC (In-Home Consultation): On-site meetings to assess suitability and requirements for installing home standby generators.
  • M&A (Mergers and Acquisitions): Corporate strategy involving the purchase, sale, or combination of companies or assets to support expansion or capability enhancement.
  • ASP (Average Selling Price): The average revenue received per unit sold, typically cited for major product lines like large generators.
  • C&I (Commercial & Industrial): Segment including products and services targeted to business and industrial customers.
  • Ecobee: Generac’s smart thermostat and home energy management subsidiary.
  • PWRcell: Generac’s brand for integrated energy storage solutions.
  • PowerMicro: Generac’s solar microinverter product launching end of year 2025.

Full Conference Call Transcript

Aaron Jagdfeld: Thanks, Kris. Good morning, everyone, and thank you for joining us today. Home standby and portable generator shipments grew sequentially in the quarter but were below seasonal expectations as a result of a power outage environment that was significantly below our long-term baseline average and the lowest third quarter of total outage hours that we've experienced since 2015. On a year-over-year basis, overall net sales decreased 5% to $1.11 billion. Residential net sales declined 13% as compared to the prior year quarter, with softness in home standby and portable generators partially offset by strong growth in sales of residential energy technology solutions.

Global C&I product sales also increased 9% during the quarter, led by growth in the domestic telecom and industrial distributor channels, as well as international markets, which included the first shipments of our large megawatt generators to data center customers. Our significant momentum in the data center market has continued, with our backlog for these products now doubling to over $300 million over the last ninety days, with even greater opportunities developing in our growing sales pipeline.

Now discussing our third quarter results in more detail, third quarter home standby shipments and activations increased sequentially from the second quarter, but shipments decreased at a mid-teens rate on a year-over-year basis as a result of the significantly weaker outage environment in the current year period, as well as the strong prior year period that included the benefit of multiple landed hurricanes. The historically low outage activity in the quarter was broad-based, with all regions declining as compared to the prior year, and resulted in portable generator sales also declining on a year-over-year basis. Home consultations for home standby generators also increased sequentially from the second quarter but declined year-over-year during the third quarter.

Although the seasonally higher levels of IHCs that we would have normally seen did not materialize this year, home consultations held a solid baseline level, with the ratio of home consultations to outage hours the highest level since we began tracking these metrics more than a decade ago. We view the relative resilience of the home standby category as further evidence of the continued growing awareness for these products, and the underlying demand we continue to see as representative of a new and high baseline level following the elevated outage environment of 2024.

Despite the very low level of outages seasonally in the third quarter, our expanded investments in our marketing and lead generation capabilities, as well as our solid execution and optimization of promotional campaigns, also provided important support for the home standby demand during the quarter. Importantly, close rates improved substantially on a sequential basis and came in better than expected during the quarter, with strong momentum continuing here in the month of October. We remain focused on initiatives to support ongoing improvements in close rates, such as further increased awareness of financing alternatives and optimized sales tools and training for our partners.

We also attribute the recent improvement in close rates to a significant change in our approach to distributing leads to our dealers. The implementation of an enhanced data-driven process that allows our dealers to select or pull which leads they prefer to pursue, as opposed to the previous push approach, distributed leads directly to specific dealers based on certain criteria. The new lead process allows a wider pool of dealers with higher close rates the ability to select which leads they believe they have the capacity to address. We believe the resulting improvement in close rates will further optimize our customer acquisition costs and lead to a broader distribution of sales leads across our residential dealer base.

Our residential dealer network continued to expand during the quarter, as our dealer count reached nearly 9,400, an increase of approximately 100 from the prior quarter and an increase of nearly 300 dealers over the prior year. We view this continued strength in contractor interest in the product category as evidence of the growing underlying demand for backup power solutions despite the softer outage environment. In addition, our aligned contractor program, which targets contractors that purchase our products through wholesale distribution, has also continued to grow and provides for incremental engagement, training, and installation bandwidth through this important distribution channel.

Also during the third quarter, we began the initial shipments of our next-generation home standby generator product line, which represents the most comprehensive platform update for the category in more than a decade. The new product rollout will continue in the fourth quarter, with our first shipments of the higher end of the product range, including the market's first 28-kilowatt air-cooled home standby generator. This new product line features the lowest total cost of ownership available, driven by reduced installation and maintenance costs, as well as introducing industry-leading sound levels and the best fuel efficiency of any residential generator on the market today.

The next-generation platform, together with our new FieldPro application, also offers a number of important benefits for our channel partners, including significantly lower commissioning times and improved remote diagnostics, enabling operational efficiencies for their businesses and greater uptime and cost savings for their customers.

Moving to Residential Energy Technology Solutions, sales of these products and services outperformed our expectations once again and grew at a significant rate during the quarter, led by shipments of energy storage systems in Puerto Rico. Our team continues to execute extremely well alongside our partners on this energy grant-related program, which is expected to drive continued strong residential energy technology sales growth into the fourth quarter. Our Ecobee team continued to drive that business forward and delivered another profitable quarter with significant gross margin improvement and operating leverage as a result of continued strong sales growth and disciplined cost control.

Additionally, Ecobee's installed base grew to approximately 4.75 million connected homes, with increased energy services and subscription sales supporting a growing high-margin recurring revenue stream. We expect Ecobee to deliver positive EBITDA contribution for the full year, a key milestone for this strategically important part of our business. As we begin launching new energy storage, microinverter, and home standby products that are integrated with Ecobee's platform during the second half of this year, we are intent on delivering a premium feature set and user experience, which we believe will be an important differentiator for our growing residential energy ecosystem.

We also made significant progress in our solar and storage product development during the third quarter as we began shipping PowerCell 2, our next-generation energy storage system, and introduced PowerMicro, our solar microinverter, that will begin shipping by the end of this year. As we close out 2025, we are focused on leveraging these new products, as well as our distribution and marketing capabilities, to drive market share gains and significant sales growth in the future.

As appropriate, however, we intend to recalibrate our investment levels to reflect the completion of our energy grant program in Puerto Rico and to adjust for a broader market environment that is likely to contract in 2026 as a result of the substantial reduction in federal incentives for solar and storage technologies. Although we see this market contracting in the near term, we believe that the secular trends of rising power prices and declining component costs are creating a situation where the economics of residential solar and storage technologies will provide for an attractive long-term market opportunity regardless of the level of government incentives.

Now let me provide some additional commentary on our commercial and industrial product categories, where we continue to see year-over-year sales growth, which accelerated during the third quarter. In particular, sales to our domestic industrial distributor customers increased at a solid rate in the period as we further reduced the lead times for our C&I products. Our teams have been working hard to increase production rates over the last eighteen months by bringing our new facility in Beaver Dam, Wisconsin, online earlier this year. As a result, we have successfully brought our lead times down to more historically normal levels.

In addition to our operational execution in the quarter, our efforts to further develop our distribution partners, owned and independent, have helped to expand our share of the domestic backup power generation market over the last several years. In addition to the growth in our industrial distribution channel, shipments to national telecom customers also grew at a robust rate in the third quarter compared to the prior year, as part of the ongoing recovery for this important channel during 2025. We continue to expect a growing dependence on wireless communication and additional infrastructure required to enhance reliability, to provide a solid backdrop for secular growth and sales of C&I products to our telecom customers into the future.

Mobile product shipments to national and independent rental customers outperformed our prior expectations and increased on a sequential basis, which we view as signaling the beginning of a recovery for this market. We anticipate favorable momentum to continue building in the coming quarters for our mobile products, and we continue to believe we are well-positioned for long-term growth given the megatrend around infrastructure-related investments needed both domestically and internationally that leverage our global portfolio of mobile products.

Internationally, total sales increased 11%, driven by continued strength in C&I product shipments in Europe and the first shipments of our large megawatt generators to a data center customer in Australia. International sales continue to benefit from the favorable impact of foreign currency, which we expect will continue in the fourth quarter. Additionally, international EBITDA margins expanded at a strong rate from the prior year due to favorable sales mix. Our initiative to penetrate the large and rapidly growing data center market continued to gain momentum, with initial shipments to international markets beginning during the third quarter.

As we saw, our global backlog of large megawatt generators for this important end market doubled to more than $300 million over the last ninety days. The first domestic shipments of these new large output generators began here in the month of October, and we are projecting strong sequential growth in sales to the data center end market during the fourth quarter. The large majority of our backlog is expected to ship in 2026, providing a meaningful tailwind for overall C&I product growth in the coming year. Importantly, we continue to develop a robust pipeline of new opportunities within the data center market that represents significant upside for our C&I product in 2027 and beyond.

Data center power demand is forecasted to grow at a significant rate for the foreseeable future, and the high uptime requirements of these facilities drive backup power needs in excess of sites' electricity consumption. Third-party estimates suggest that global data center power demand will cumulatively grow more than 100 gigawatts over the next five years, with the potential for incremental annual capacity additions to double by the end of this decade. Additionally, further global market opportunities exist for large megawatt generators within our traditional end markets, in particular, providing backup power for large manufacturers, cold chain distribution centers, healthcare facilities, and other critical infrastructure that have higher backup power requirements.

Given existing supply constraints within the high end of the C&I backup power generator market, large megawatt generators represent a massive opportunity for Generac as a long-standing, well-known participant in the C&I backup power markets. In addition to our highly competitive lead times, we believe that our strong reputation as an engineering-driven organization that is uniquely focused on backup power with a customer-centric approach and world-class service capabilities will allow us to gain share in the data center backup power market as well as our traditional end markets.

Given the momentum in our sales pipeline and the significant incremental market opportunity we see in the future, we have been actively exploring further investments to aggressively expand our competitive positioning and increase our capacity and capabilities for these products. We expect to undertake several important capacity expansion-related projects and investments during the fourth quarter to position Generac as a significant producer of these products well beyond 2026 and to support what we believe could be a potential doubling of our C&I product sales over the next three to five years.

In closing this morning, our third quarter results and our lower residential sales outlook reflect a historically weak power outage environment. However, the megatrends that support our future growth potential remain intact. Lower power quality and higher power prices will be an ongoing challenge given the more frequent and severe weather patterns as well as broader electrification trends. At the same time, the massive increase in data center power demand is expected to further stress the already fragile power grid by amplifying the growing electricity supply-demand imbalance.

Additionally, we're entering a period of unprecedented growth for our C&I products, as the expansion of our product line to include large megawatt generators has allowed for our entry into the rapidly growing data center market. As a leading energy technology company, we believe Generac is uniquely positioned at the center of these megatrends that have the potential to drive substantial and sustainable growth in the years ahead. I'll now turn the call over to York to provide further details on third quarter results as well as our updated outlook for 2025. York?

York Ragen: Thanks, Aaron. Looking at third quarter 2025 results in more detail, net sales during the quarter decreased 5% to $1.11 billion as compared to $1.17 billion in the prior year third quarter. The combined effect of acquisitions and foreign currency had an approximate 1% favorable impact on revenue growth during the quarter. Looking at consolidated net sales for the third quarter by product class, residential product sales decreased 13% to $627 million as compared to $723 million in the prior year. As Aaron discussed in detail, a significantly lower power outage environment as compared to the prior year resulted in a decline in home standby and portable generator shipments.

This is partially offset by robust year-over-year growth in sales of energy storage systems and Ecobee home energy management solutions. Commercial and industrial product sales for the third quarter increased 9% to $358 million as compared to $328 million in the prior year. Core sales growth of approximately 6% was driven by an increase in shipments to our domestic telecom customers, together with strong growth in Europe and initial shipments of our new large megawatt generators to a data center customer in Australia, partially offset by continued weakness in shipments to national rental accounts. Net sales for the other products and services category increased approximately 5% to $129 million as compared to $123 million in 2024.

Core sales increased approximately 3%, primarily due to growth in Ecobee and remote monitoring subscription sales, and other installation and maintenance services revenue, partially offset by a reduction in parts and shipments given the lower outage environment. Gross profit margin was 38.3% compared to 40.2% in the prior year third quarter, primarily due to unfavorable sales mix, together with the impact of higher tariffs and manufacturing under absorption, partially offset by increased price realization as a result of price increases implemented earlier in the year to address the impact of incremental tariffs.

Operating expenses increased $20.2 million or 6.7% as compared to 2024 as a result of certain legal and regulatory charges in the current year, as disclosed in the accompanying reconciliation schedules. Excluding these items, which are not indicative of our ongoing operations, operating expenses decreased $600,000 or 0.2% from the prior year. Adjusted EBITDA before deducting for non-controlling interests, as defined in our earnings release, was $193 million or 17.3% of net sales in the third quarter, as compared to $232 million or 19.8% of net sales in the prior year. This margin decline was primarily driven by the previously mentioned unfavorable sales mix and the operating expense deleverage on the lower sales volumes.

I will now briefly discuss financial results for our two reporting segments. Domestic segment total sales, including inter-segment sales, decreased 8% to $938 million in the quarter as compared to $1.02 billion in the prior year, including approximately 1% sales growth contribution from acquisitions. Adjusted EBITDA for the segment was $166 million as compared to $167 million in the prior year, including an approximate 3% benefit from foreign currency. Adjusted EBITDA for the segment before deducting for non-controlling interests was $27 million or 14.8% of total sales as compared to $20 million or 12.2% in the prior year.

Now switching back to our financial performance for the third quarter 2025 on a consolidated basis. As disclosed in our earnings release, GAAP net income for the company in the quarter was $66 million as compared to $114 million for 2024. The current year quarter included an unfavorable wall box fair market value mark-to-market adjustment of $5.7 million and a loss on refinancing of debt of $1.2 million related to our Term Loan A and revolver amend and extend transaction that closed in July 2025.

Our interest expense declined from $22.9 million in the third quarter of last year to $18.5 million in the current year period as a result of lower borrowings and lower interest rates relative to the prior year. GAAP income taxes during the current year third quarter were $11.8 million or an effective tax rate of 15% as compared to $33.5 million or an effective tax rate of 20.7% for the prior year. The decrease in effective tax rate was primarily driven by favorable discrete tax items in the current year quarter related to certain return-to-provision adjustments that did not occur in the prior year.

Aaron Jagdfeld: Diluted net income per share for the company on a GAAP basis was $1.12 in 2025 compared to $1.89 in the prior year. Adjusted net income for the company, as defined in our earnings release, was $108 million in the current year quarter or $1.83 per share. This compares to adjusted net income of $136 million in the prior year or $2.25 per share. Cash flow from operations was $118 million as compared to $212 million in the prior year third quarter, and free cash flow, as defined in our earnings release, was $96 million as compared to $184 million in the same quarter last year.

The change in free cash flow was primarily driven by an increase in inventory levels during the current year quarter and lower operating income, which was compounded by a decline in inventory levels during the prior year quarter. Total debt outstanding at the end of the quarter was $1.4 billion, resulting in a gross debt leverage ratio of 1.8 times on a reported basis. With that, I will now provide comments on our updated outlook for 2025.

York Ragen: As discussed in detail by Aaron, the extremely low outage environment in recent months has resulted in lower demand for home standby and portable generators, and a reduction in our full-year 2025 outlook for overall net sales growth. We now expect consolidated net sales for the full year to be approximately flat compared to the prior year, which includes an approximate 1% favorable impact from the combination of foreign currency and acquisitions. This updated outlook compares to our previous guidance of plus 2% to 5% net sales growth over the prior year.

Looking at product classes, we now project full-year 2025 residential product sales to decline as compared to the prior year in the mid-single-digit percent range, while C&I product sales are expected to increase as compared to the prior year also in the mid-single-digit percent range. The resulting sales mix shift is projected to have an unfavorable impact on gross and adjusted EBITDA margins for the year as compared to our prior guidance. Specifically, we now expect gross margin percent for full-year 2025 to be approximately flat to slightly down compared to the full-year 2024 levels.

This represents a nearly 1% decrease from our prior expectation of approximately 39.5% as a result of the previously mentioned unfavorable sales mix and lower manufacturing absorption, given the lower residential production volumes, together with incremental new product transition and C&I plant start-up costs that are transitory in nature. Additionally, this gross margin guidance assumes that current tariff levels that are in effect today stay in place for the remainder of the year. Looking at our adjusted EBITDA margin expectations for the full year 2025, given the factors impacting our gross margins, together with additional operating expense deleverage on the lower sales volumes, we are reducing our guidance for adjusted EBITDA percent to approximately 17%.

This is compared to our previous guidance range of 18% to 19%. Additionally, as a result of higher use of cash for primary working capital and capital expenditures, free cash flow conversion from adjusted net income is now expected to be approximately 80% for the full year 2025, as compared to the previous guidance range of 90% to 100%. This would still result in approximately $300 million of free cash flow in fiscal 2025, which provides for near-term optionality to allow for additional investments to drive future growth as part of our disciplined and balanced capital allocation framework.

As is our normal practice, we're also providing additional guidance details to assist with modeling adjusted earnings per share and free cash flow for the full year 2025. For full-year 2025, our GAAP effective tax rate is now expected to be between 20% to 20.5%, down from our prior guidance of 23% to 23.5% due to the lower realized third-quarter tax rate. Specifically, for the fourth quarter 2025, our GAAP effective tax rate is expected to be approximately 25%. Importantly, to arrive at appropriate estimates for adjusted net income and adjusted earnings per share, add-back items should be reflected net of tax using this 25% effective tax rate.

We now expect interest expense to be approximately $70 million to $74 million for the full year 2025, assuming no additional term loan principal prepayments during the year. This compares to our previous guidance of $74 million to $78 million and contemplates lower interest rates and outstanding borrowings than previously assumed. Our capital expenditures are now projected to be approximately 3.5% of forecasted net sales for the full year 2025, a 0.5% increase from prior guidance as a result of incremental CapEx investment for data center capacity expansion expected in 2025. Depreciation expense, GAAP intangible amortization expense, and stock compensation expense are expected to remain consistent with last quarter's guidance.

Our full-year weighted average diluted share count is expected to be approximately 59.4 million to 59.5 million shares as compared to 60.3 million shares in 2024. Finally, this 2025 outlook does not reflect potential additional acquisitions or share repurchases that could drive incremental shareholder value during the year. This concludes our prepared remarks. At this time, we'd like to open up the call for questions.

Operator: Thank you. You will need to press 11 on your telephone. To remove yourself from the queue, you may press 11 again. You will be limited to one question to allow everyone the opportunity to participate. Please stand by while we compile the Q&A roster. Our first question comes from the line of Tommy Moll of Stephens. Your line is open, Tommy.

Tommy Moll: Good morning, and thank you for taking my question. I want to start on the data center market opportunity, Aaron. What all have you learned thus far in terms of the competitive dynamics there and the size of the opportunity? I think last quarter, you framed it at about $5 billion next year. And then just in terms of the types of customers where you're seeing some traction, what's the nature of the conversation with hyperscale at this point? And any orders there in the backlog number that you gave us?

Aaron Jagdfeld: Thank you. Yes. Thanks, Tommy. So, I mean, obviously, this is just a really unique opportunity for us. You know, the structural deficit of the supply side of backup power for this particular market is, as you would imagine, the foot race that's ongoing here to put, you know, these data center facilities in the ground. You know, every single conversation we have with a developer, with a, you know, hyperscaler, an edge data center provider, all of those conversations are almost the same in terms of just the difficulties in bringing these facilities online because of some of the constraints.

The constraints being in the electrical side of the buildings, transformers, switchgear, generators, all of those components are in heavy demand, as you would expect. And, yeah, this is, you know, I think just from a structural standpoint, it feels like this is going to continue for some time. We don't have in our backlog today any orders reflected from any hyperscalers. But we continue to have very productive conversations there. And we're very optimistic as we work to get added to the approved vendor lists for these hyperscalers. They are very eager to have additional supply coming to the market. They're very eager to have us be a supplier to the market.

Again, I think our brand, we're a trusted brand. We've been in the C&I backup power market for over fifty years. And so our expansion into this product line is kind of a natural evolution. And it's not some fly-by-night supplier coming into the market. It's somebody who's well-known, well-capitalized, and somebody who is going to be very aggressive, as I said on the call in the prepared remarks. We see a unique opportunity here for us to do something that is kind of generational with the company and with this part of our business. And as I said in the prepared remarks, we will have we've got a number of balls in the air here in that, like, Q4.

Here in Q4, we're gonna have to pull the trigger on a number of things. We've taken up our CapEx guide range slightly. That's part of the front end of this. That's everything from facilities to equipment. Our M&A funnel has also expanded. Where we think we could add capabilities and additional capacity through acquisitions. So we're looking at basically, we're not leaving any stone uncovered here, Tommy. It's a again, we have to be we have to be aggressive. We have to lean forward. And we will capitalize on this in a way that I think the market certainly wants us to succeed. Every conversation we've had is to that effect. We will succeed.

This is going to be an area that's right in our wheelhouse. I feel very comfortable and very confident that we can execute on this. Our first shipments I watched them go out of our factory in Oshkosh, Wisconsin, last week. A week and a half ago, our first shipments went out internationally to a customer here earlier in the month. And things are rolling. We've got products online, and we're looking at, you know, how can we aggressively expand our capacity by leaning forward with investment in this area of our business.

Operator: Our next question comes from the line of George Gianarikas of Canaccord Genuity. Please go ahead, George.

George Gianarikas: Hi. Good morning, everyone, and thank you for taking my questions. Hey, George. Good morning. Now, I know you're not talking about 2026 just yet, but if you could just sort of help us work through all the moving parts here. Clearly, outages have been weaker. There's a pull from data center generators, and there's this, the roll-off potentially of what's happened so far in Puerto Rico. So how should we sort of think about 2026 broadly with all the moving pieces at play? Thank you.

Aaron Jagdfeld: Yes. George, thanks for the question. Yes. Just kind of and again, not giving guidance here, I think to answer your question, you know, let's start with just from a product category standpoint. Our residential products, and kinda dig down a level deeper there with home standby and portables. Yeah. It was just a crappy season. I mean, let's be honest. The weather was really nice. Everywhere. Been doing this a long time. We have not seen many three queues where we used to have outage activity. Like, you know, we plan the business around normal baseline outage. And we got nowhere near normal.

I mean, we were literally 75% to 80% below normal for the quarter, just in raw outage hours. And that's without, you know, obviously, any major events happening either. And obviously, we're comping against majors last year. So it just you know, it looks bad, it feels bad. But it's temporary. I mean, we've been through this before. These weather patterns, you know, we don't know what happens with weather. It comes and goes. And these outage you know, structurally, nothing's changed there. I mean, just you've got in fact, I would point to all the structural things from a megatrend standpoint that we've been talking about. Only continue to point to less reliability in the grid going forward.

So And what's really remarkable, I would just point this out, and we said this in the prepared remarks, and people can call what they want. But, you know, those product categories home standby and portables, were up sequentially. Over Q2. So, like, we're holding that baseline of growth that we achieved last year. It's amazing to me the underlying kind of the underlying strength of that category. We just didn't see the seasonal lift. That we would normally see. So fast forward to 2026 for that category. You know, it's gonna grow well. Right? I mean, if we return again the assumption there, returning to baseline level of outages, we're gonna go to easy comps.

Now we have the opportunity to grow that category. I would also point out, you know, we continued to grow dealer base. Right? Our dealer count went up. We added over a 100 in the quarter, which I think is indicative of a healthy market. We continue to see lead demand, lead flow. Our customer acquisition costs continue to improve. We've been continuing to use data to refine our lead algorithms and our processes there in a way that we believe is gonna impact and had we actually saw favorable impact to close rates in the quarter, and we think that's gonna accelerate. Into 2026. So improved close rates next year, broader dealer counts, return to normal baseline, outages.

And we also won shelf space for portable generators coming off of last season's hurricane. So we've got expanded presence at retail. Those are all that's all a really good setup for the categories. Those product categories next year. So I would put that in the plus column for next year. You know? It's gonna grow it's gonna grow very nicely. We also have pricing. The effective pricing will get a full year of that. Next year. So all of those things are good things for our residential products. Energy technology is a subset of that. Inside of that, obviously, Puerto Rico, energy grant program there goes away after this year.

We haven't heard that it's going to continue at least at this point. There's a chance it could. But yeah, we're not banking on that at all. And, obviously, structurally, I think everybody knows that market gonna contract in 2026. The market for solar and storage. And that's on the back of the loss of primarily the loss of the 25D, you know, tax credit, incentive tax credit for homeowners. That said, when you look at, you know, longer term, look at your electricity rates. George, I know you follow this. I know a lot of folks follow this. Electricity prices are up. They're up in many cases. In many areas, they're exceeding the rates of inflation.

And they're only going higher. We're just getting started. That is before we see this wave of AI power demand really impact pricing. For electricity rates. And as rates go up, you know, electricity prices go up, as the cost of these technologies continues to come down for storage and solar. And I would also say that as interest rates come down, structurally, you can say, okay. The market's gonna be The overall market's gonna contract by 20% to 25% next year. I mean, I think it's conceivable that we're not gonna claw all that back. But we've got growth with Ecobee. And I think we have these other elements that longer term are still a really good setup.

For solar and storage. We got a lot of new products just hitting the market. So we feel good about, you know, it's not gonna feel good in terms of the results next year for that segment. I don't think it'll be off 20% to 25%. It'll be off something because the loss of the DOE grant program. But, again, I think we've long term, we feel good about where we're going with that product category. Feel good about the new products, feel really good about Ecobee, Ecobee's been an outstanding performer for us within that part of our business. Feel good about that.

And then you move to 300 million of backlog that we've amassed, you know, it's doubled in the last ninety days. Most of that is 2026. As we said before, structurally, we think we can probably go to $500 million from a capacity standpoint in '26. So we still have, you know, opportunity to take that pipeline and convert more in '26. To the degree that we have customers who may need product and may need to get their hands on gensets. Next year, I think we can provide them. And in fact, we think we can probably go north of $500 million to some degree.

By stretching capacity by making some of the investments from making right now, there's a little bit of upside there for '26. Beyond the $500 million. But what we're focused on right now, George, is beyond 2026. Yeah. We're focused on growing that business, growing our capacity, in a way that, you know, again, it's just as I mentioned before, on the previous question, it's just unique. It's generational. It's don't think we'll ever see this opportunity again, and we've gotta go after it aggressively.

Operator: Our next question comes from the line of Mike Halloran of Baird. Please go ahead, Mike.

Mike Halloran: Good morning, everyone. Hey, Mike. Good morning. You know, I think you mentioned it briefly in there, Aaron, but maybe just on the new product launches on the clean energy side, I know early days. How is that tracking? And then maybe more importantly, could you just frame up what you mean or what the latest thought process is in terms of getting back to breakeven in those product categories. And what kind of that iterative process looks like as we work through the remainder of this year? Early thought on '26 as far as how much of that loss you can reclaim?

Aaron Jagdfeld: Yes. Thanks, Mike. So again, you know, long term, feel really good about that set of products for us and the market opportunity there given the structural challenges around energy prices, and I think and continued need for resiliency with that side of the business. We're building out an energy ecosystem. '26 is going to be tougher. We mentioned in our prepared remarks, we used the word recalibrate. Using that word a lot internally here on how to make sure that, you know, as we get to the tail end of our product introduction cycle here, with those products, you know, we can ramp down some of the R&D spend associated with that.

Now that'll shift over into some, you know, there'll be some hypercare efforts. So new products are just hitting the market now. You know, our first shipments of PowerCell 2 were here in Q4. You know, we're kind of on a limited launch schedule. We're looking to expand it in 2026. PowerMicros will start shipping here at the end of this year. So I don't have a ton of data points to offer for the market on the success or acceptance by the market of those products. I can only reiterate what we've been told over the last several years. As we've been working on developing these products, and that is the market feels that it needs additional suppliers.

It's a bit of a duopoly right now on the inverter side. And, honestly, it's a, you know, it's kind of a there's I want to say it's a monopoly on the storage side, but, obviously, there's a supplier there in Tesla that has, you know, it provides the lion's share of the market opportunity or the market supply. So we think there's great opportunities for us to be successful. Our kind of north star there is still to be breakeven by 2027. That is our North Star. It hasn't changed even though the market's gonna contract. That was our North Star prior to, you know, the loss of federal support, 25D, for these products.

But we believe, I think given, again, the high the continued upward movement in retail electric prices, the continued downward movement in these technologies, the cost of these technologies, and the potential for, you know, a pullback in interest rates, we think that's a good setup. The paybacks on these systems will improve over time. They'll take a step back here in '26. But for us and again, we're going to recalibrate. We do I want to say the last thing I want to say on we do need to see success in 2026. Even if it's, you know, we need to see at least share gains for storage and inverters. Or we'll have to recalibrate further.

If we don't see that kind of success, it is not our intention in a money-losing business forever. We are not a startup with, you know, unlimited capital backing from, you know, from investors. We understand. And believe me, we treat this as our own money. Don't want to lose money on anything we do, but we see this as an investment in the future as an important market, as an important part of building out an energy ecosystem that we believe will provide a differentiated solution. For us to be a market participant over the long haul. And we think it's an important thing for us to do. We're committed to it.

But we need to see success, and we need to see progress. And we're confident that will happen.

Operator: Our next question comes from the line of Jeff Hammond of KeyBanc Capital Markets. Your question, please, Jeff.

Jeff Hammond: Hey. Good morning. Hey, Jeff. Hey. Just morning. Back on the data center, I think you said you know, you think you could do 500 or maybe better next year. You know, with so, you know, one, just you know, as you start to you know, get orders, are all of those kind of contemplated for '26, or are people know, those longer-dated orders and you know, and then just in terms of, like, this new capacity you're considering, like, what would that look like? Is it new plan? Is it expansion? Is it you know, we gotta double this thing, you know, as soon as we can? Thanks.

Aaron Jagdfeld: Yeah. Thanks, Jeff. So just to clarify, so, you know, the $300 million we have in backlog, we said that the majority of that, the vast majority of that, is a 2026 shipping schedule. You know, the $500 million or north thereof, that's capacity. So just to be clear, we haven't subscribed that fully yet, but we have the opportunity to do that. I will say, and I think we said this on the last call, a lot of our conversations we're having today, in particular with hyperscalers, is about 2027 and beyond. Because they've already because of the long lead times for these products, many of them have already got their 2026 plans completed.

Any incremental above the $300 million that we've talked about here for '20 you know, that's gonna come as, you know, opportunistic things. Maybe other suppliers who have delivery challenges, you know, and so somebody needs a plan B. We could be a plan B. Perhaps somebody who wants to accelerate connecting a data center more quickly. We are having those types of conversations where they believe they'll have a facility that's ready to go. Sometime in 2026. But they maybe weren't planned to be online until early '27, but they want to move that up. And if we can supply generators, that's obviously an important consideration for bringing any of these facilities online.

In terms of just having the uptime requirements, that could be an opportunity. So yeah, we're gonna continue to look to how do we improve our capacity numbers even for '26. Above the $500 million we have now. But the substantial change kind of maybe the second half of your question, the substantial change in capacity, what we're looking at there is how do we increase our capacity? Basically, how do we basically double it again? How do we, you know, increase that? You know, 50% to 100% more than where we're at today. How do we double that for 2027 and beyond? You know, at least '27, certainly, '27, '28.

And, you know, that's gonna come through you kind of touched on it. We're gonna need hard assets like facilities. Right? These are big units. They take, you know, take up a lot of room. So we're gonna need facilities. We're gonna need space. We have line of sight on a number of facilities that we are in negotiation on. Here in Wisconsin and in other parts of the US. We haven't signed anything yet. But, we are far along in negotiation and diligence around some of those physical areas where we can expand.

Beyond that, we've got equipment ordered with some of the longer lead time elements that we know from the testing equipment, some of the material handling equipment for products of this size, those lead times are also extended as you would imagine. And we put those bets down here recently, and so we feel like we'll be able to bring that online in time to satisfy, you know, late '26, early '27 type of production timelines. We also, as I mentioned in the prepared remarks, we continue to look at our M&A opportunities. Are there other ways that we could accelerate even more quickly, more rapidly?

Not only in terms of raw capacity to production for these products, but also certain elements where we can, you know, are there other value streams we can capture? In the unit? We don't make the engine. So, structurally, we're at a bit of a disadvantage to some of our competitors who actually make the engine. Not all of them do, but some of them do. Where else can we look to add value in these products? And is that an opportunity? Are there other critical components where we've heard of shortages?

And can we look to acquisitions to put us in the market to be a more, you know, a more fulsome supplier not only of the backup equipment, but maybe other elements around the backup systems that go into these facilities? So we're looking at all those things. You know, we've had a very, as you know, Jeff, you've followed the company a long time. We've got a very active M&A group here, team here. Nothing's changed there. We've done a lot of M&A over the last fifteen years. We're very comfortable doing that.

We've got an excellent team here that is working on a number of things that could, you know, provide us additional capacity and or capabilities more quickly as we get into 2026. So all those things are on the table. I think, you know, the point that I want to make, I think, for you and for others is we have a fantastic position financially. A great really strong balance sheet. We produce a ton of cash flow. We're going to put that to work. We're gonna put that to work in our C&I business. In a way we have not put it to work before.

Gonna put it to work going after this opportunity, because, again, we feel this is just a unique thing. And so we're gonna be aggressive there. We're gonna lean in, and that's gonna, you know, have a we believe, a material impact to potentially double this business, you know, in the next three to five years, that C&I business.

Operator: Our next question comes from the line of Brian Drab of William Blair. Your line is open, Brian.

Brian Drab: This is sort of an easy segue to my question. You know, you're talking about the capacity expansion and the idea that you don't manufacture the engine. I'm just wondering, Aaron, like, what are the biggest challenges? What are your biggest concerns about adding this much capacity that quickly in terms of supply chain or, you know, just anything in terms of the manufacturing operation that's gonna be challenging? I think people are looking for, you know, just that confidence that this capacity can come online smoothly.

Aaron Jagdfeld: Yeah. Thanks, Brian. Great question. You know, I would just point to, you know, we brought it online, brought the product line online in our Oshkosh, Wisconsin facility very quickly. We finished our development earlier this year. Produced our first lines. We made by the way, yeah, within our CapEx numbers this year are a bunch of upgrades to that facility to allow for the start-up of manufacturing in these products. It was part of getting to the $500 million or slightly north of capacity that's available for us, you know, in 2026. That's in our run rate, our CapEx run rate this year.

You know, we've been working around the clock, and that's gonna lie in terms of the test cell upgrades, the material handling upgrades, physical upgrades. I mean, we're moving walls. We're moving cranes. We're expanding. We're doing things there that are readying us for production. And as I said, we rolled some of the first units down the line, you know, a couple of weeks ago, got those out on trucks and shipping, you know, about ten days ago. And we're building here in the fourth quarter. So I feel very comfortable that, like, the production side of this we can do that. That's within our wheelhouse. The supply chain side, our engine partner there has a ton of capacity.

And I don't feel like that's gonna be a constraint for us. Which I think has if you look at the market, the broad market today and the structural imbalance that we've talked about on this call and on the previous call, is largely around the engine supply. And so coming into the market with an engine supply partnership like we have, with Baudoin, we just, you know, and who has a, you know, they've made a massive investment that they brought online in these, what they refer to as large bore diesel engines, you know, we feel like, you know, we're in a really good position there.

To be able to, you know, supply the market with these types of products. Engines will not be a constraint. Then you move to the next large component, which is alternators. We are working with multiple alternator suppliers. They are all suppliers we know because we buy from them today for our C&I market. So it's not a new supply base. You know, this is a very similar supply base to what we see in C&I. Where we have great long-term relationships. We're able to leverage those relationships to work with them to grow that business. And to leverage, you know, our again, our expertise and, again, we're known commodities.

If they're not selling to somebody, you know, on some fly-by-night operation or some potential customer here they don't know. We are not a credit risk. We're not a risk operationally. We're a known commodity. So I think those are all pluses. I think where the physical constraints are gonna happen or the constraints are gonna happen is physically. Right? The amount of product that we can build because these things take up space. And then downstream, some of the packaging constraints that could happen, you got a lot of the industry, you know, we build the unit up to a certain level, and then the product is shipped to, in our industry, what's known as a packager.

The packager then provides the outer housing, the enclosure, to the end customer spec. And those are unique specifications. They're really a lot of times, they're engineered to order. And so they're highly configured. And they're built to unique specifications for customers. We believe there's opportunities there for us to participate and work with some of the packagers. We've lined up a couple of partnerships there. To make sure that we've got at least adequate capacity for the orders we have in house today. But how do we grow beyond that? We don't want that to be a constraint in our growth. We're going forward. So we're looking at ways to partner more deeply with those packagers.

So that we can ensure that's not a constraint on our growth for this market opportunity. So there's a lot of things that I just said there. There's a lot of things that we need to do execution-wise. But, again, when I look at what this is, it's just not that far afield from what we do today. And, you know, we again, or what we've been doing for the last fifty years in the C&I industry. And so I just feel like we're if there's a place where, you know, something is in our wheelhouse and where we can, you know, we have the opportunity to really have an impact.

It's in this not only the data center end of it, but as I said, the traditional market for large, you know, large backup power is also a great opportunity for us. We've got a lot of order activity, a lot of pipeline activity there that we're working through as we bring the first products to market. On an order basis. For that end of the market, as well. So a lot of great things ahead for that part of our business.

Operator: Our next question comes from the line of Mark Strouse of JPMorgan.

Mark Strouse: Yes. Good morning. Thanks for taking our questions. Aaron, you mentioned earlier trying to get on the approved vendor list for some of the hyperscalers. You just give a bit more color on what that process really looks like? And is the timeline for that kind of more measured in months or quarters or any that you can share there would be great. Thank you.

Aaron Jagdfeld: Yeah. Thanks, Mark. Yeah. It's different for each hyperscaler. You know, we are just I might just point out. I mean, we are the preferred supplier for two global colocators already. So in terms of, like, what it means to be on the ABL, when we're talking about that, we're really referring to the ABL from hyperscalers. We're making really good progress with the colocators. And we are already listed as a preferred supplier for two of them globally. I feel really good about where we're at there. Back to the hyperscalers, I mean, if this is a baseball game, we're not playing baseball here in Milwaukee anymore, unfortunately.

Dodgers swept us, but, for those that are fans of the game, nine-inning game, not an 18-inning game like the other night, but a nine-inning game, you know, I would categorize our progress there. Of all, it is measured in months. I think, you know, again, the hyperscalers that we're working with are pushing us to get through their gauntlet. And it is a gauntlet. It's just it's just a process. A lot of it is you know, there's contracts. Right? So you got a lot of back and forth from a legal perspective. You have, you know, certificates of insurance. You have entity discussions. Right? Like, what's our their org structure, energy structure, there are high-level management meetings.

They want to do face-to-face. Right? Every one of them has a little bit of a different approach. And there are different boxes to check for each one. We do not see any showstoppers in those processes. They just take time to get through. I would say this is a baseball game. Back to the reference. We're probably something in the, you know, the sixth or seventh inning. With most of those hyperscalers. Maybe a little bit different one to the other from, you know, each one's a little bit different, as I said before. But good progress. We hope to have, you know, better updates as we go forward here. Yep.

I think the greatest evidence there will be the continued growth in that backlog and, actually having a hyperscaler come in and, you know, with their trust, you know, give us an opportunity to supply them with product, whether it be in '26 what is more likely, as I said before, it's 2027 and beyond.

Operator: Our next question comes from the line of Christine Cho of Barclays. Please go ahead, Christine.

Christine Cho: Good morning. Thank you for taking my question. Just as a follow-up to Mark's question, I understand that your engines are actually coming from France, but are you finding that the Chinese ownership of the supplier is something that is brought up in your conversations with the bigger type of customers? And would you say that you need at least one hyper contract in hand in order to feel comfortable in doubling the capacity?

Aaron Jagdfeld: Yes. Great questions, Christine. So on the supply chain side with our engine supplier, yeah, we've talked through with our customer base, you know, where we're getting our engines from. Obviously, I think if you look at, you know, the supply of any of these engines, by the way, from one of the competitive set, there are components that today are only available in some parts of the world like China. And so, you know, our reliance on the supply chain there that's global in nature, but, you know, specific to certain areas of the world. Like China or certain countries, is not unique. The ownership structure there, I mean, is something we've talked about.

But, you know, again, where those engines are manufactured, that our partner there has a global base of manufacturing. That they are expanding, by the way. It's not just gonna be France. You know, they've got facilities in India. They've got facilities that they're looking at in other parts of the world. So we believe that, you know, over time, you know, it's, you know, it's something that will, if it's a concern today, I think, you know, that's something that we're gonna be able to mitigate. There are also potential structures, ownership structures in the future. That could look different. Right? Be they JVs, or some other structure there, you know, we're nothing's off the table.

We don't want that to be, you know, a negative. On our entry into this market. We don't think it is, and nobody has indicated that it's a showstopper at this point. But, you know, something that we want to continue to stay ahead of. I think as far as, you know, the answer to your question about the doubling of capacity or potential doubling of capacity, yes, I would certainly feel better. If we had, you know, a hyperscale commitment there. That would make me feel better about the long-term, you know, usage of that.

But I would just say this, you know, the way we're structuring the expansion of capacity there, you know, I want to be clear that we feel it's something that if we needed to be repurposed for something else, we'll use it for that. Could be the next leg of growth in another part of our business, could be, you know, we lease quite a bit of outside storage space today. That could, you know, come in-house if we needed to convert some facilities. It's not ideal.

But I think, you know, the added capacity that we're leaning into, we feel, you know, we're not getting to a point where I would say, you know, if let's say that hyperscale business doesn't come to us for whatever reason. And I don't think that'll be the case. I think, quite honestly, it'll be the other way around. But I do think we'd be able to deploy that capacity to our benefit. It would take longer to use it up, of course. And I'd feel more confident to your point if we had that commitment, but I do think that's something that we'll be able to talk about here, you know, in the months ahead.

There'll be growth in the traditional markets. For sure. Growth in our traditional markets that we'll need some of that as well.

Operator: Our next question comes from the line of Keith Housum of Northcoast Research. Please go ahead, Keith.

Keith Housum: Good morning, guys. I appreciate it. I was staying along the lines of the data centers. You know, but, Aaron, perhaps you can touch on, you know, the pricing for these data center generators and, like, the margin profile and kind of thinking how that might affect the margins going forward?

Aaron Jagdfeld: Yes. Thanks, Keith. Great question. Pricing ASP on each unit you're talking about a three and a quarter megawatt unit or larger. And by the way, I mean, to just note, I mean, today, our product line, you know, is we've rolled out the first part of the product line up to three and a quarter megawatt. The next part of the product line three and a half to four megawatts will roll out in 2026. But the ASPs on these products range from, you know, depends on the content, depends on the customer. It can be anywhere from, you know, $1.5 million to $2 million per genset.

So pricing is, you know, and we're competitive on pricing across the market. I would say the margin profile domestically margin profile is very similar to our C&I product set here in North America, maybe a little bit below that, but not dramatically so. Internationally, it's a little bit below that. You know, the international markets are always when you look at our C&I products, gross margins are not quite as strong internationally. And that's kind of a legacy that's just structural. In terms of the international markets being, I would say, more competitive overall. And us being a smaller player internationally. So I think that's what kind of leads to that.

Working we've made a lot of progress on that, by the way, in our ownership with Pramac over the last decade. You know, they've improved their gross margins dramatically. Which has been great, and we're gonna continue to work on that. But gross margins for those products, you know, I would just say this. I mean, the incremental impact to EBITDA margins is fantastic for, you know, the data center market in terms of the overall impact on our C&I product margins. And if you just looked at the incremental impact on EBITDA margins, it will be positive.

Operator: Our next question comes from the line of Sean Milligan of Needham and Company. Please go ahead, Sean.

Sean Milligan: Hey, everyone. Thank you for taking the question. I was just curious about the margin progression. I know you don't want to really give guidance for next year, but in terms of the framework, the back half EBITDA margins are kind of weaker than what were expected. So just gives and takes, into next year, like, does a core resi HSB get better? Energy tech, you have some revenue headwinds. And then data center piece. Just trying to kind of think about what that all means for margins moving forward on the EBITDA side.

York Ragen: Yes. Sean, it's York. So, yeah, I think if you looked at our updated guidance for '25, we're talking more like 17% approximately 17% EBITDA margins versus the call it 18% to 19% that we were previously guiding. So at the midpoint of the last guide, call it a one and a half percent reduction. So maybe obviously, the unfavorable mix with selling less, bringing our home standby guidance down given the outage environment, that's our highest margin product. So I'd say about a third of that 1.5% decline is mix.

Which to Aaron's point, if you think about 2026 and you revert back to the mean with regards to outages, that mix, we should see a nice pop in home standby that should help claw back some of that mix decline. So I think on the mix side, be some recovery in '26. Obviously, the OpEx deleverage on the lower guide is probably the remainder of the 1.5% EBITDA guide. So, obviously, as we are talking about a framework for '26 and growing home standby and portables and C&I, we're gonna be able to leverage our OpEx structure. So we'll be able to improve our EBITDA margins from the 17% we're talking about in '25.

There's probably some small price cost impact in that 1.5% decline for '25 that I would say is transitory in nature, which shouldn't repeat in '26. So that's a long-winded way of saying we should see some nice recovery in EBITDA margins off this 17% that we're talking in '25, some due to mix, some due to operating leverage, some to some of these transitory costs coming through. New product introduction costs, plant ramp-up costs, etcetera, pricing. So should see a recovery in those EBITDA margins for '26.

Operator: Thank you. I would now like to turn the conference back to Kris Rosemann for closing remarks. Sir?

Kris Rosemann: We want to thank everyone for joining us this morning. We look forward to discussing our fourth quarter and full year '25 earnings results with you in mid-February 2026. Thank you again and goodbye.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.